Are International Banks Different? Evidence on Bank Performance and Strategy

44 Pages Posted: 19 Dec 2017

See all articles by Ata Can Bertay

Ata Can Bertay

World Bank - Development Research Group (DECRG); Tilburg University - European Banking Center

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

Abstract

This paper provides evidence on how bank performance and strategies vary with the degree of bank internationalization using data for 113 countries over the 2000-2015 period. We investigate if international banks headquartered in developing countries behave and perform differently than those headquartered in high-income countries. Results show that compared to domestic banks, international banks have lower valuations and achieve lower returns on equity in general. This suggests on average bank internationalization has progressed beyond the point where it is in the interest of bank shareholders, potentially because of corporate governance failures and too-big-to-fail subsidies that accrue to large and complex banks. In contrast, developing country international banks seem to have benefited from internationalization compared to their high-income counterparts. Furthermore, for international banks headquartered in developing countries, bank internationalization reduces the cyclicality of their domestic credit growth with respect to domestic GDP growth, smoothing out local downturns. In contrast, if the international bank is from a high-income country investing in a developing country, its lending is relatively procyclical, which can be destabilizing.

Keywords: Bank internationalization, procyclicality, risk-taking, south-south banking

JEL Classification: F36, G21, G28

Suggested Citation

Bertay, Ata Can and Demirgüç-Kunt, Asli and Huizinga, Harry, Are International Banks Different? Evidence on Bank Performance and Strategy (December 2017). CEPR Discussion Paper No. DP12505. Available at SSRN: https://ssrn.com/abstract=3089762

Ata Can Bertay

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
+1 202 458 7253 (Phone)

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Asli Demirgüç-Kunt (Contact Author)

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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